xQUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For
the quarterly period ended June 30, 2007.

oTRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

Commission
File Number 001-32892

MUELLER WATER PRODUCTS, INC.

(Exact name of registrant
as specified in its charter)

Delaware

20-3547095

(State or other
jurisdiction of

(I.R.S. Employer

incorporation or
organization)

identification
No.)

1200 Abernathy Road

Atlanta, GA 30328

(Address of principal
executive offices)

(770) 206-4200

(Registrants telephone
number, including area code)

Indicate by check mark
whether the Registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes x No o

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer x

Accelerated
Filer o

Non-accelerated
Filer o

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2
of the Act). Yes o No x

There were 114,829,497
shares of common stock of the Registrant outstanding as of July 31, 2007,
comprised of 28,984,577 shares of Series A common stock and 85,844,920 shares of Series B
common stock.

PART I. FINANCIAL
INFORMATION

ITEM 1.FINANCIAL
STATEMENTS

MUELLER
WATER PRODUCTS, INC.

CONDENSED
CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

June 30,
2007

September 30,
2006

(dollars in millions)

Assets

Cash and cash
equivalents

$

57.0

$

81.4

Receivables, net
of allowance for doubtful accounts of $5.1 million and $4.8 million
at June 30, 2007 and September 30, 2006, respectively

305.6

322.9

Inventories

484.1

454.6

Deferred income
taxes

72.6

42.6

Prepaid expenses

33.3

33.7

Total current assets

952.6

935.2

Property, plant
and equipment, net

350.0

337.0

Deferred
financing fees and other long-term assets

17.3

16.8

Identifiable
intangible assets, net

826.6

835.4

Goodwill

869.1

865.5

Total assets

$

3,015.6

$

2,989.9

Liabilities
and Shareholders Equity

Current portion
of long-term debt

$

6.5

$

9.0

Accounts payable

107.1

129.9

Accrued expenses
and other liabilities

97.2

116.3

Total current liabilities

210.8

255.2

Long-term debt

1,135.5

1,118.3

Accrued pension
liability, net

46.3

43.7

Accumulated
postretirement benefits obligation

44.0

46.3

Deferred income
taxes

286.2

278.5

Other long-term
liabilities

24.4

20.9

Total liabilities

1,747.2

1,762.9

Common stock,
$.01 par value per share:

Series A400,000,000 shares authorized.
28,964,350 and 28,750,000 shares issued at June 30, 2007 and
September 30, 2006

0.3

0.3

Series B200,000,000 shares authorized and
85,844,920 shares issued at both June 30, 2007 and September 30,
2006

0.8

0.8

Capital in excess
of par value

1,420.5

1,417.5

Accumulated
deficit

(139.4

)

(173.0

)

Accumulated other
comprehensive loss

(13.8

)

(18.6

)

Total shareholders equity

1,268.4

1,227.0

Total liabilities
and shareholders equity

$

3,015.6

$

2,989.9

The accompanying notes are an integral part of the condensed consolidated financial statements.

On October 3,
2005, the Companys former parent, Walter Industries, Inc. (Walter),
purchased all of the outstanding common stock of Predecessor Mueller in the
Acquisition (as defined in Note 1 to the Condensed Consolidated Financial
Statements).

(dollars
in millions)

Contribution of
Predecessor Mueller by Walter

$

932.9

Less: Cash of
Predecessor Mueller received

(76.3

)

Total net assets
received excluding cash

$

856.6

Subsequent to the Acquisition, Walter forgave an
intercompany receivable from U.S. Pipe of $443.6 million.

The accompanying notes are an integral part of the condensed consolidated financial statements.

6

MUELLER WATER
PRODUCTS, INC.

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE
THREE AND NINE MONTHS ENDED
JUNE 30, 2007 AND JUNE 30, 2006

(UNAUDITED)

Note 1.Organization
and Basis of Presentation

The registrant is Mueller Water Products, Inc., a
Delaware corporation (Mueller Water or the Company). The Company is the
surviving corporation of the merger on February 2, 2006 of Mueller Water
Products, LLC (Commission File Number: 333-116590) and Mueller Water
Products Co-Issuer, Inc. with and into Mueller Holding Company, Inc.,
a Delaware corporation. On June 1, 2006, Mueller Water completed its
initial public offering of its Series A common stock (NYSE: MWA). On December 14,
2006, Walter Industries, Inc. (Walter), a diversified New York Stock
Exchange traded company (NYSE:WLT), distributed all of the Companys
outstanding Series B common stock (NYSE: MWA.B) to Walters shareholders.

On October 3, 2005, through a series of
transactions (the Acquisition), Walter, through a wholly-owned subsidiary,
acquired all outstanding shares of capital stock of Mueller Water Products, Inc.
(Predecessor Mueller), which immediately was converted into Mueller Water
Products, LLC, a Delaware limited liability company and contributed United
States Pipe and Foundry Company, LLC, (U.S. Pipe) to the acquired company.
The results of operations of Predecessor Mueller are included in the
Consolidated Statements of Operations beginning October 3, 2005.

The Company was originally organized as United States
Pipe and Foundry Company, Inc. (Inc.) and was a wholly owned subsidiary
of Walter. On September 23, 2005, Inc. was dissolved and United
States Pipe and Foundry Company, LLC was organized in the state of Alabama, and
the operations of Inc. were conducted under the form of a limited liability
company. The Company has three operating segments, which are named after its
leading brands in each segment: Mueller Co., U.S. Pipe, and Anvil.

The condensed consolidated
financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America, which require management to
make certain estimates and assumptions that affect the reported amounts of
assets, liabilities, sales and expenses for the reporting periods. Actual
results could differ from those estimates. All significant intercompany
balances and transactions have been eliminated. In the opinion of management,
all normal and recurring adjustments that are considered necessary for a fair
financial statement presentation have been made. The prior period loss on early
extinguishment of debt of $4.1 million has been reclassified from interest
expense, net of interest income in the accompanying Condensed Consolidated
Statements of Operations and from other, net in the accompanying Condensed
Consolidated Statements of Cash Flows to conform to current year presentations.
The condensed balance sheet data as of September 30, 2006 was derived from
audited financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of America.

Note 2. Related
Party Transactions

Related
Party TransactionsThe Company purchases foundry coke
from Sloss Industries, Inc., which was an affiliate until December 14,
2006, for an amount that approximates the market value of comparable
transactions. Costs included in cost of sales related to purchases from Sloss
Industries, Inc. were $4.8 million for each of the three month
periods ended June 30, 2007 and 2006, and $13.9 million and $15.6 million
for the nine month periods ended June 30, 2007 and 2006, respectively.

7

Sloss Industries, Inc. also provides other
services to the Company, including the delivery of electrical power to one of
the Companys facilities, rail car switching and the leasing of a distribution
facility. Charges for such services were immaterial for the three months ended June 30,
2007 and $0.5 million for the three months ended June 30, 2006, and
$0.3 million and $1.3 million for the nine months ended June 30, 2007 and
2006, respectively.

Related
Party AllocationsCertaincosts incurred by Walter
such as insurance, executive salaries, professional service fees, human
resources, transportation, healthcare and other centralized business functions
were allocated to its subsidiaries. Certain costs that were considered directly
related to the U.S. Pipe segment were charged to the Company and included
in selling, general and administrative expenses. As of December 15, 2006,
Walter is no longer considered a related party and the allocation of these
costs to the Company ceased. These costs were zero and $2.3 million for the
three months ended June 30, 2007 and 2006, respectively, and $0.5 million
and $3.3 million for the nine months ended June 30, 2007 and 2006,
respectively. Costs incurred by Walter that could not be directly attributed to
its subsidiaries were allocated to them based on estimated annual revenues.
Such costs were allocated to the Companys U.S. Pipe segment and are recorded
in related party corporate charges in the accompanying Consolidated Statements
of Operations. While the Company considers the allocation of such costs to be
reasonable, the cost of performing such services on its own behalf may vary
from historically allocated amounts.

Certain of the Companys
employees had been granted Walter restricted stock units and stock options under
Walters share-based compensation plans. In connection with Walters
distribution of all the Companys Series B common stock to its
shareholders on December 14, 2006, Walter cancelled these instruments. The
Company had no expenses related to this share-based compensation allocated from
Walter for the three months ended June 30, 2007, and expensed $0.2 million
for the three months ended June 30, 2006, and $0.5 million each for the
nine month periods ended June 30, 2007 and 2006.

Note 3. Acquisitions

Star Pipe

As part of the acquisition
of the assets of Star Pipe, Inc. (Star), Anvil agreed to make a
contingent earnout payment to the sellers to the extent the gross profit of the
acquired business exceeds a targeted gross profit. During the three months
ended June 30, 2007, the Company paid $3.7 million to the sellers as the
final payment for the contingent earnout. This earnout payment has been
recorded as an increase to goodwill.

Fast Fabricators, Inc.

On January 4, 2007, the Company acquired the
assets of Fast Fabricators, Inc., a ductile iron pipe fabricator
headquartered in Bloomfield, Connecticut, for $23.0 million in cash, net of
cash acquired. The purchase price may increase by up to $1.5 million for an
earnout holdback. The earnout holdback will be settled by March 15, 2008,
based on the 2007 calendar year EBITDA as defined in the purchase agreement
with the seller. The Company has deposited $1.5 million into escrow, which is
included in cash and cash equivalents in the accompanying Condensed
Consolidated Balance Sheet, for the Earnout Holdback. The Company cannot access
these funds until the earnout, if any, has been settled.

8

The
estimated fair values of the assets acquired and liabilities assumed are as
follows (dollars in millions):

Current assets

$

10.5

Identifiable intangible assets

13.1

Goodwill

0.5

Property, plant, and equipment and other noncurrent
assets

1.8

Accounts payable and accrued liabilities

(2.9

)

Net assets
acquired

$

23.0

Acquisition of
Predecessor Mueller by Walter Industries

On October 3, 2005, pursuant to the agreement
dated June 17, 2005, Walter acquired all of the outstanding common stock
of Predecessor Mueller for $944.0 million and assumed $1.05 billion of
indebtedness. Predecessor Mueller was converted into a limited liability
company on October 3, 2005 and was merged with and into the Company on February 2,
2006. In conjunction with the acquisition, U.S. Pipe was contributed in a
series of transactions to Mueller Group, LLC (Mueller Group or Group), a
wholly owned subsidiary of the Company, on October 3, 2005. On February 23,
2006, Walter received $10.5 million based on the final closing cash and working
capital, adjusting the purchase price of Predecessor Mueller to $933.5 million.

Walters
acquisition of Predecessor Mueller has been accounted for as a business
combination with U.S. Pipe considered the acquirer for accounting purposes. The
total purchase price is comprised of (dollars in millions):

Acquisition of
the outstanding common stock of Predecessor Mueller

$

918.1

Acquisition-related
transaction costs

15.4

Total purchase price

$

933.5

Acquisition-related transaction costs include
investment banking, legal and accounting fees and other external costs directly
related to the Acquisition.

The
excess of the purchase price over the net tangible and identifiable intangible
assets is recorded as goodwill. Based on current fair values, the purchase
price was allocated as follows (dollars in millions):

Receivables, net

$

177.4

Inventory

373.2

Property, plant
and equipment

214.2

Identifiable
intangible assets

856.9

Goodwill

801.7

Net other assets

350.7

Net deferred tax
liabilities

(267.9

)

Debt

(1,572.7

)

Total purchase
price allocation

$

933.5

Note 4. Deferred Financing Fees

In connection with the
debt refinancing discussed in Note 7, the Company wrote off $11.1 million in
deferred financing fees related to the 2005
Mueller Credit Agreement and capitalized additional financing fees of $10.8
million related to the 2007 Credit Agreement and the 2007 Senior Subordinated
Notes during the three months ended June 30, 2007. Deferred fees of $12.4
million as of June 30, 2007 amortize as

9

follows: $2.6 million related to the 2007
Revolver amortize on a straight-line basis over its five-year life;
$0.5 million related to the Term A Loan amortize using the effective-interest
rate method over its five-year life; $1.7 million related to the Term B
Loan amortize using the effective-interest rate method over its seven-year
life; and $7.6 million related to the 2007 Senior Subordinated Notes
amortize using the effective-interest rate method over a ten-year life.

Note 5. Facility
Rationalization, Restructuring and Related Costs

On October 26, 2005 Walter announced plans to
close U.S. Pipes Chattanooga, Tennessee plant and transfer the valve and
hydrant production of that plant to Mueller Co.s Chattanooga, Tennessee and Albertville,
Alabama plants. The plant closed in 2006, resulting in the termination of
approximately 340 employees. Exit costs totaled $49.9 million of which
approximately $28.6 million was related to severance and fixed asset write-offs
and qualified as restructuring and impairment charges. The remaining exit costs
of $21.3 million were comprised of an inventory write-down totaling $11.4
million, a $9.0 million write-off of unabsorbed overhead costs and $0.9 million
of other related costs, which were recognized in cost of sales during the year
ended September 30, 2006. The Company paid $0.4 million of the
above-mentioned severance in the nine months ended June 30, 2007.

On January 26, 2006, the Company announced the
closure of the Henry Pratt valve manufacturing facility in Dixon, Illinois,
which is included in the Companys Mueller Co. segment. This facility was
closed during the second quarter of fiscal 2007. Total costs related to this
closure were $3.7 million, including termination benefits of $1.0 million and
property impairment charges of $1.7 million, which were recorded as adjustments
to goodwill in the year ended September 30, 2006. These restructuring
costs were recorded to goodwill as the overall plan to close the facility was
identified prior to the Acquisition. The remaining estimated costs of $1.0
million are for the transfer and installation of equipment and temporary
outsourcing of manufacturing and were expensed when incurred. The Company paid
$0.5 million of the above-mentioned severance in the nine months ended June 30,
2007, respectively.

On November 18, 2006, the Company announced the
relocation of pipe nipple and merchant coupling production in the Canvil
manufacturing facility in Ontario, Canada to the Beck facility in Pennsylvania,
both of which are included in the Companys Anvil segment. The consolidation of
these product lines in the Beck Facility was completed during the quarter ended
March 31, 2007, resulting in the termination of approximately 90 employees.
Termination benefits of $1.8 million were recorded as adjustments to goodwill
in the year ended September 30, 2006. These restructuring costs were
recorded to goodwill as the overall plan to close the facility was identified
prior to the Acquisition. In the current fiscal year, the Company revised its
severance estimate, and decreased the goodwill balance and accrued severance by
$0.4 million. The Company paid $0.2 and $0.7 million of the above-mentioned
severance in the three and nine months ended June 30, 2007, respectively.

Activity
in accrued restructuring and other severance for the three and nine months
ended June 30, 2007 was as follows (dollars in millions):

For the three
months ended
June 30, 2007

For the nine
months ended
June 30, 2007

Beginning balance

$

3.0

$

5.3

Adjustments to
accruals allocated to goodwill for plant closures identified prior to the
Acquisition



(0.4

)

Restructuring and
other related severance payments

(0.5

)

(2.4

)

Ending balance

$

2.5

$

2.5

10

Note 6. Share-Based
Compensation Plans

Certain
of the Companys employees had been granted Walter restricted stock units and
stock options under Walters share-based compensation plans. The Company has
expensed $0.7 million related to the share-based compensation costs allocated
from Walter for the nine months ended June 30, 2007. In connection with
Walters distribution of all the Companys Series B common stock to its
shareholders on December 14, 2006, Walter cancelled these outstanding
instruments and the Company replaced them with restricted stock units and
options to acquire shares of the Companys Series A common stock. These
equity awards were designed to provide intrinsic value and terms equal to the
Walter cancelled instruments as follows:

Number of
instruments

Range of
exercise prices

Weighted
average
exercise price

Total
compensation

(millions)

(dollars in millions)

Restricted stock
units

0.4

$

14.95

$

5.7

Traditional stock
options

0.5

$

2.05 - 20.56

13.45

0.6

0.9

$

6.3

The
Companys 2006 Stock Incentive Plan provides for grants of Series A common
stock-based compensation instruments. The Company granted stock options,
restricted stock, and restricted stock units under this plan during the three and
nine months ended June 30, 2007 as follows:

For the three months ended June 30, 2007

Number of
instruments

Weighted
average fair
value per
instrument

Total
compensation

(millions)

(dollars in millions)

Restricted stock
and restricted stock units

0.05

$

15.42

$

0.7

Traditional stock
options

0.05

5.88

0.3

Employee stock
purchase plan options

0.03

3.11

0.1

0.13

$

1.1

For the nine months ended June 30, 2007

Number of
instruments

Weighted
average fair
value per
instrument

Total
compensation

(millions)

(dollars in millions)

Restricted stock
and restricted stock units

0.5

$

15.12

$

7.4

Traditional stock
options

0.5

5.81

2.5

Employee stock
purchase plan options

0.1

3.47

0.4

1.1

$

10.3

As of June 30, 2007,
there was approximately $26.5 million of unrecognized compensation cost related
to non-vested share-based compensation arrangements granted under the 2006
Stock Incentive Plan, including the Walter replacement instruments described
above. The Company expensed $2.8 million and $0.7 million related to
share-based compensation for the three months ended June 30, 2007 and
2006, respectively, and $8.0 and $1.0 for the nine months ended June 30,
2007 and 2006, respectively.

Note 7. Borrowing
Arrangements

During
May 2007, through a series of transactions, the Company refinanced its
debt, which resulted in lower overall interest rates and greater covenant
flexibility. The new 2007 Credit Agreement and new 2007

11

Senior Subordinated Notes generated cash proceeds of
$1,140.0 million. These proceeds were used to pay the 2005 Mueller Term Loan
and retire substantially all of the 2004 Senior Subordinated Notes and 2004
Senior Discount Notes. In connection with the refinancing, the Company recorded
a loss on early extinguishment of debt of $36.4 million. The components of the
Companys debt are as follows:

June 30,
2007

September 30,
2006

(dollars in millions)

2007 Credit Agreement:

Term Loan A

$

150.0

$



Term Loan B

565.0



2007 Senior
Subordinated Notes

425.0



2005 Mueller
Credit Agreement



793.8

2004 Senior
Subordinated Notes



215.1

2004 Senior
Discount Notes

0.2

116.3

Capital lease
obligations

1.8

2.1

1,142.0

1,127.3

Less current portion

(6.5

)

(9.0

)

$

1,135.5

$

1,118.3

2007
Credit Agreement: On May 24, 2007, the Company entered into a credit
agreement (the 2007 Credit Agreement) consisting of a $300 million senior
secured revolving credit facility (the 2007 Revolver), a $150 million term
loan (Term Loan A), and a $565 million term loan (Term Loan B). The 2007
Credit Agreement contain customary covenants and events of default, including
covenants that limit the Companys ability to incur debt, pay dividends and make
investments. The Company is compliant with these covenants as of June 30,
2007 and expects to remain in compliance.

The 2007 Revolver terminates in May 2012 and
bears interest at a floating rate equal to LIBOR plus a margin ranging from
1.0%-1.75% depending on the Companys leverage ratio as defined in the
2007 Credit Agreement. The Company must also pay a commitment fee for any
unused portion of the 2007 Revolver which ranges from 0.2% to 0.5%, also
depending on the Companys leverage ratio. As of June 30, 2007, the margin would be
1.50% and the commitment fee is 0.375%.

The Term A Loan matures in May 2012 and bears
interest at a floating rate equal to LIBOR plus a margin ranging from 1.0%-1.75%
depending on the Companys leverage ratio as defined in the 2007 Credit
Agreement. Only July 31, 2007, the Company repaid $8.4 million of the Term
A Loan. As a result, the remaining principal will be repaid in eleven quarterly
payments of $3.5 million commencing September 2009 with the remaining balance
paid at maturity. As of June 30, 2007 the weighted average interest rate
is 6.82%, including a margin of 1.5%.

The Term B Loan matures in May 2014 and bears
interest at a floating rate equal to LIBOR plus 1.75%. On July 31, 2007,
the Company repaid $31.6 million of the Term B Loan. As a result, the remaining
principal will be repaid in 27 quarterly payments of $1.3 million commencing
September 2007 with the remaining balance paid at maturity. As of
June 30, 2007 the weighted average interest rate is 7.09%.

12

2007 Senior Subordinated
Notes: On May 24, 2007, the Company
completed a private placement of $425 million principal face amount of 73¤8%
senior subordinated notes maturing June 1, 2017 (the Notes). The Notes pay interest in arrears on June 1
and December 1 of each year, commencing December 1, 2007. The Notes
contain customary covenants and events of default, including covenants that
limit the Companys ability to incur debt, pay dividends and make investments. The
Company is compliant with these covenants as of June 30, 2007 and expects
to remain in compliance. Substantially all of the Companys domestic
subsidiaries guarantee the Notes. The Company intends to register similar notes
with the SEC and issue these registered notes, which will be publicly traded,
in exchange for the Notes during the fourth quarter of its fiscal year 2007.

2005 Mueller Credit
Agreement:On October 3, 2005, Group
entered into a credit agreement (the 2005 Mueller Credit Agreement)
consisting of a $145 million senior secured revolving credit facility maturing
in October 2010 (the 2005 Mueller Revolving Credit Facility) and a
$1,050 million senior secured term loan maturing in October 2012 (the 2005
Mueller Term Loan). The Company redeemed $245.6 million of the Term Loan on June 1,
2006, and on May 24, 2007 redeemed
$74.7 million of the Term Loan and replaced the 2005 Mueller Term Loan and 2005
Revolving Credit Facility with the 2007 Credit Agreement. The 2005 Mueller Term
Loan required quarterly principal payments of $2.0 million through October 3,
2012, at which point in time the remaining principal outstanding was due. The
commitment fee on the unused portion of the 2005 Mueller Revolving Credit
Facility was 0.375% and the interest rate was a floating interest rate of 1.75%
over LIBOR. The 2005 Mueller Term Loan carried a floating interest rate of 2.0%
over LIBOR.

2004 Senior Subordinated
Notes: In April 2004, Group issued $315
million principal face amount of 10% senior subordinated notes due 2012, with
an effective interest rate of 9.2%. The effective discount on these notes was
recorded as part of the Acquisition. The Company redeemed $110.3 million of
these notes on July 3, 2006 and $204.7 million of the notes on May 24,
2007.

2004 Senior Discount
Notes: In April 2004, Predecessor Mueller
issued 223,000 units, consisting of $223 million principal face amount of 14¾%
senior discount notes due 2014 and warrants to purchase 24,487,383 shares of
Predecessor Muellers common stock, with an effective interest rate of 12.1%. The
effective discount on these notes was recorded as part of the Acquisition. The
Company redeemed $52.5 million principal amount of these notes on July 3,
2006 and $110.7 million principal amount of these notes on May 24, 2007,
resulting in outstanding notes with an accreted value of $0.2 million as of June 30, 2007.

Note 8. Derivative Financial Instruments

Interest Rate Swaps:The Company uses
interest rate swap contracts with a cumulative total notional amount of $325
million to hedge against cash-flow variability arising from changes in LIBOR
rates in conjunction with its LIBOR-indexed variable rate borrowings. These
swaps are accounted for as effective hedges, and as a result the Company
recorded an unrealized gain from these swap contracts, net of tax, of $2.8
million at June 30, 2007 in accumulated other comprehensive income. These
swaps have a fair value of $4.9 million at June 30, 2007, which is
included in deferred financing fees and other long-term assets in the
accompanying Condensed Consolidated Balance Sheet.

Forward Foreign Currency
Exchange Contracts:The Company uses Canadian dollar
forward exchange contracts with a cumulative notional amount of $12.2 million
to hedge against cash-flow variability arising from changes in the Canadian
dollar-U.S. dollar exchange rate in connection with anticipated transactions, primarily
our Canadian subsidiaries inventory purchases denominated in U.S. dollars. These
forwards are accounted for as effective hedges, and as a result the Company
recorded an unrealized loss from these swap contracts of $0.6 million at June 30,
2007 in accumulated other comprehensive income. These forwards have a liability
fair value of $1.0 million at June 30, 2007, which is included in other
long-term liabilities in the accompanying Condensed Consolidated Balance Sheet.

13

The Company has also entered into Canadian dollar
forward exchange contracts reducing the Companys exposure to currency
fluctuations from its Canadian-denominated intercompany loans. The instruments have a cumulative notional
amount of $33.2 million. With these instruments, the Company sells Canadian
dollars for U.S. dollars at a weighted average rate of $0.873. Gains and losses
on these instruments are included in selling, general and administrative
expenses in the accompanying Condensed Consolidated Statement of Operations.
The Company recorded net losses of $2.4 million and $1.7 million for the three
months and nine months ended June 30, 2007, respectively.

Natural Gas SwapsThe Company uses
natural gas swap contracts with a cumulative total notional amount remaining as
of June 30, 2007 of approximately 214,000 mmbtu to hedge against cash-flow
variability arising from changes in natural gas prices on the NYMEX exchange in
conjunction with its anticipated purchases of natural gas. These contracts fix
the Companys purchase price for natural gas at prices ranging from $7.10 to
$7.56 per mmbtu through September 30, 2007. The Company entered into an
additional natural gas swap contract on June 29, 2007. This contract fixes
the Companys purchase price for natural gas at $8.16 per mmbtu for a total
purchased volume of 406,000 mmbtu in fixed monthly settlement increments
ranging from 23,000 mmbtu to 41,000 mmbtu commencing with October 2007
through September 2008. All of the above swaps are accounted for as
effective hedges and have a total liability fair value of $0.1 million at June 30,
2007, which is included in other long-term liabilities in the accompanying
Condensed Consolidated Balance Sheet. The Company recorded an unrealized loss
from its swap contracts, net of tax, of $0.1 million at June 30, 2007 in
accumulated other comprehensive income.

Note 9. Pension
and Other Postretirement Benefits

The
components of net periodic benefit cost for pension and postretirement benefits
for the three months and nine months ended June 30, 2007 and 2006 are as
follows:

Pension Benefits

Other Benefits

For the three months
ended June 30,

For the three months
ended June 30,

2007

2006

2007

2006

(dollars in millions)

Components of net
periodic benefit cost:

Service cost

$

1.6

$

2.0

$

0.1

$

0.1

Interest cost

5.1

4.7

0.3

0.4

Expected return on plan assets

(5.9

)

(4.9

)





Amortization of prior service cost

0.1



(0.6

)

(0.7

)

Amortization of net loss (gain)

0.5

1.2

(0.4

)

(0.3

)

Curtailment and termination benefits loss (gain)



0.1



(0.6

)

Net periodic
benefit cost (gain)

$

1.4

$

3.1

$

(0.6

)

$

(1.1

)

Pension Benefits

Other Benefits

For the nine months
ended June 30,

For the nine months
ended June 30,

2007

2006

2007

2006

(dollars in millions)

Components of net
periodic benefit cost:

Service cost

$

4.8

$

5.9

$

0.3

$

0.5

Interest cost

15.3

14.1

0.9

1.0

Expected return on plan assets

(17.7

)

(14.7

)





Amortization of prior service cost

0.3

0.2

(1.8

)

(1.9

)

Amortization of net loss (gain)

1.5

3.5

(1.2

)

(0.7

)

Curtailment and termination benefits loss (gain)



5.0



(1.7

)

Net periodic
benefit cost (gain)

$

4.2

$

14.0

$

(1.8

)

$

(2.8

)

14

For the three months and
nine months ended June 30, 2006, the Company had no contributions to its
pension plans. The Company anticipates contributing approximately
$19.5 million to fund its pension plans and $2.0 million to its other
post-employment benefits plans in fiscal 2007 and may make further
discretionary payments.

Note 10. Supplementary
Balance Sheet Information

Selected
supplementary balance sheet information is presented below:

June 30,
2007

September 30,
2006

(dollars in millions)

Inventories

Purchased
materials and manufactured parts

$

71.2

$

66.7

Work in process

122.9

127.7

Finished goods

290.0

260.2

$

484.1

$

454.6

Property, plant and equipment

Land

$

28.6

$

28.4

Buildings

89.3

83.4

Machinery and
equipment

533.4

489.9

Other

56.1

46.4

707.3

648.1

Accumulated
depreciation

(357.4

)

(311.1

)

$

350.0

$

337.0

Accrued expenses and other current liabilities

Vacations and
holidays

$

14.3

$

13.6

Workers
compensation

5.8

6.0

Accrued payroll
and bonus

16.2

23.5

Accrued sales commissions

4.4

5.0

Accrued taxes

7.0

7.7

Accrued warranty
claims

3.1

2.7

Accrued
environmental claims

0.6

2.5

Accrued cash
discounts and allowances

19.9

22.1

Accrued interest

5.8

13.6

Accrued
restructuring and other severance

2.5

5.3

Accrued medical

4.4

3.7

Other

13.2

10.6

$

97.2

$

116.3

15

Note 11. Supplementary
Income Statement Information

The
components of interest expense, net of interest income are presented below:

Three months ended

Nine months ended

June 30,
2007

June 30,
2006

June 30,
2007

June 30,
2006

(dollars in millions)

Interest
expense, net of interest income:

Interest expense

$

24.3

$

28.9

$

68.0

$

87.5

Deferred financing fee amortization

0.6

1.2

1.9

3.7

Write off of bridge loan commitment fees







2.5

Interest rate swap gains

(1.0

)



(2.7

)

(0.5

)

Total interest expense

23.9

30.1

67.2

93.2

Interest income

(0.6

)

(2.3

)

(2.4

)

(3.1

)

Total interest expense,
net of interest income

$

23.3

$

27.8

$

64.8

$

90.1

Note 12. Income
Taxes

The Company calculates its effective tax rate under
the principles of Accounting Principles Board Opinion No. 28, which
requires that an estimated annual effective tax rate be determined and applied
to interim period pre-tax income. The effective income tax rate for the three
and nine month periods ended June 30, 2007 is 42%. During the quarter
ended June 30, 2006, the Company changed the annual effective tax rate to
68% from 32% based on its most recent earnings projection for fiscal 2006. The
Company recorded a favorable tax adjustment related to applying the increased
rate to the net loss for the six months ended March 31, 2006. The
difference between the federal, state, and foreign statutory tax rates and the
effective tax rate is due primarily to the net unfavorable permanent difference
for non-deductible interest expense and non-deductible compensation expense,
partially offset by a deduction related to domestic manufacturing activity.

A dispute exists with
regard to federal income taxes for fiscal years 1980 through 1994 and 1999 through 2001 allegedly owed by the
Walter consolidated group, which included the U.S. Pipe segment during these
periods. According to Walters Quarterly Report on Form 10-Q for the
period ended March 31, 2007, Walter management estimates that the amount
of tax presently claimed by the Internal Revenue Service is approximately $34.0
million for issues currently in dispute in bankruptcy court for

17

matters
unrelated to the Company. This amount is subject to interest and penalties. In
addition, the IRS has issued a Notice of Proposed Deficiency assessing
additional tax of $80.4 million for the fiscal years ended May 31, 2000, December 31,
2000 and December 31, 2001. As a matter of law, the Company is jointly and
severally liable for any final tax determination, which means that in the event
Walter is unable to pay any amounts owed, the Company would be liable. Walter
disclosed in the above mentioned Form 10-Q that they believe their
filing positions have substantial merit and that they intend to defend
vigorously any claims asserted. The Company has concluded the risk of loss to
the Company is not probable and accordingly, no liability has been recorded in
the Companys condensed consolidated financial statements.

Environmental
Matters

The Company is subject to a wide variety of laws and
regulations concerning the protection of the environment, both with respect to
the construction and operation of many of its plants and with respect to
remediating environmental conditions that may exist at its own and other
properties. The Company believes that it is in substantial compliance with
federal, state and local environmental laws and regulations. The Company
accrues for environmental expenses resulting from existing conditions that
relate to past operations when the costs are probable and reasonably estimable.

Solutia Inc. and Pharmacia Corporation (collectively Solutia)
filed suit against U.S. Pipe and a number of co-defendant foundry-related
companies on January 5, 2003 for contribution and cost recovery allegedly
incurred and to be incurred by Solutia in performing remediation of
polychlorinated biphenyls (PCBs) and heavy metals in Anniston, Alabama,
pursuant to a partial consent decree with the United States Environmental
Protection Agency (EPA). U.S. Pipe and certain co-defendants subsequently
reached a settlement with EPA concerning their liability for certain
contamination in and around Anniston, which was memorialized in an
Administrative Agreement and Order on Consent (AOC) that became effective on January 17,
2006. The settling defendants contend that the legal effect of the AOC
extinguishes Solutias claims and filed a motion for summary judgment on that
ground. Discovery in this matter has been stayed in the interim. On June 21,
2007, the United States Supreme Court decided United States
v. Atlantic Research, which affects the law underlying the parties
contentions on the effect of the AOC. U.S. Pipe has reached a cash-out
settlement agreement whereby Phelps Dodge Industries, a co-defendant and
co-respondent on the AOC, has assumed U.S. Pipes obligation to perform the
work required under the AOC. The Company has filed briefs with the court regarding
the effects of the Atlantic Research
decision, but cannot predict the outcome of this litigation. If the court
permits the case to proceed, management will review the claims, but currently
has no basis to form a view with respect to the probability or amount of
liability in this matter.

U.S. Pipe and a number of co-defendant foundry-related
companies were named in a putative civil class action case originally filed on April 8,
2005 in the Circuit Court of Calhoun County, Alabama, and removed by defendants
to the U.S. District Court for the Northern District of Alabama under the Class Action
Fairness Act. The putative plaintiffs in the case filed an amended complaint
with the U.S. District Court on December 15, 2006. The amended
complaint alleged state law tort claims (negligence, failure to warn,
wantonness, nuisance, trespass and outrage) arising from creation and disposal
of foundry sand in the Anniston, Alabama area alleged to contain harmful
levels of PCBs and other toxins, including arsenic, cadmium, chromium, lead and
zinc. The plaintiffs originally sought damages for real and personal property
and for other unspecified personal injury. On June 4, 2007, a Motion to
Dismiss was granted to U.S. Pipe and certain co-defendants as to the claims for
negligence, failure to warn, nuisance, trespass and outrage. The remainder of
the complaint was dismissed with leave to file an amended complaint. On July 6,
2007, plaintiffs filed a second amended complaint, which dismissed prior claims
relating to U.S. Pipes former 10th Street facility and no longer alleges personal
injury claims. Plaintiffs filed a third amended complaint on July 27, 2007.
Management believes that

18

numerous procedural and
substantive defenses are available. At present, management has no reasonable
basis to form a view with respect to the probability of liability in this
matter.

Although the Company now
produces a small amount of no-lead brass products, most of the Companys brass
valve products contain approximately 5.0% lead. Environmental advocacy groups,
relying on standards established by Californias Proposition 65, are seeking to
eliminate or reduce the content of lead in water infrastructure products
offered for sale in California. Some of the Companys subsidiaries have entered
into settlement agreements with these environmental advocacy groups to modify
products or offer substitutes for sale in California. Legislation to
substantially restrict lead content in water infrastructure products has been
introduced in the United States Congress. Congress or state jurisdictions other
than California may enact legislation similar to Proposition 65 to restrict the
content of lead in water products, which could require the Company to incur
additional capital expenditures to modify production. The Company incurred
approximately $8.0 million in capital spending during the year ended September 30,
2006 to implement and update a no-lead brass production line. Also, the Company
began consolidating its two existing brass foundries into one facility, incurring
$2.3 million and $5.8 million in capital spending during the nine months ended June 30,
2007 and the year ended September 30, 2006 and, respectively. The Company
expects to complete the foundry consolidation project during fiscal 2007 with
total capital spending of approximately $11.7 million.

Note 15. Subsequent
Events

On July 31, 2007, the Company declared a
quarterly dividend of $0.0175 per share of the Companys Series A and Series B
common stock, payable on August 20, 2007 to shareholders of record at the
close of business on August 10, 2007.

On July 31, 2007, the
Company repaid $8.4 million of the Term A Loan and $31.6 million of the Term-B
Loan.

The
following information is included as a result of the guarantee by certain of the
Companys wholly-owned U.S. subsidiaries (Guarantor Companies) of the Notes.
None of the Companys other subsidiaries guarantee the debt. Each of the
guarantees is joint and several and full and unconditional. Guarantors include
the accounts of the following direct and indirect subsidiaries of the Company: